How do psychological factors shape economic decisions?

Behavioral economics studies how psychological, cognitive, emotional, cultural, and social factors influence the economic decisions of individuals and institutions. By focusing on the bounds of rationality, behavioral models integrate insights from psychology, neuroscience, and microeconomic theory to explain how real decisions deviate from traditional economic assumptions. Although it emerged as a distinct field in the 1970s and 1980s, its roots trace back to 18th-century thinkers like Adam Smith.

What we know

• Behavioral economics is the study of psychological, cognitive, emotional, cultural, and social factors involved in the decisions of individuals or institutions. [1, 2]
• Behavioral models typically integrate insights from psychology, neuroscience, and microeconomic theory to address the bounds of human rationality. [2]
• The field began as a distinct area of study in the 1970s and 1980s, though it can be traced back to 18th-century economists like Adam Smith. [2]
• Research on human judgment, decision-making, cognitive science, social psychology, and behavioral economics has continually identified cognitive biases over the last six decades. [4]

Where to go next

• the bigger pictureWhat is cognitive bias?
• what caused itHow did cognitive psychology begin?
• how we knowWhat drives human behavior?
• compared withHow do 18th-century economic views compare?
• what followedWhat are the practical applications of cognitive biases?
• an unexpected connectionHow does cognitive bias connect to pseudoscience?Cognitive biases can make individuals more inclined to endorse pseudoscientific beliefs by requiring less evidence for claims that confirm their preconceptions.

Sources

• [1]behavioral economics (Wikidata Q647525) · CC0 1.0
• [2]Behavioral economics · CC BY-SA 4.0
• [3]Human behavior · CC BY-SA 4.0
• [4]Cognitive bias · CC BY-SA 4.0
• [5]Cognitive psychology · CC BY-SA 4.0